A JPMorgan analyst placed "Buy" ratings on shares of Merck & Co. and Schering-Plough Corp. Wednesday, but voiced cautions on the pharmaceutical sector and on shares of other major drug makers. The top issues facing drug makers include a more cautious Food and Drug Administration and a wave of patent expirations on blockbuster drugs over the next few years. Merck is in top pick, as shares should rise as the company builds sales of its diabetes treatment Januvia and its human papillomavirus vaccine Gardasil, along with restructuring efforts that are lowering its costs. Schering-Plough's buyout of Organon Biosciences by $14.5 billion deal that closed in November should allow the company to significantly improve its profit margins. These two companies are also the most protected from a new "patent cliff" under a period where a large number of valuable drugs go off-patent between 2010 and 2012,
JPMorgan gave "Neutral" ratings to Bristol-Myers Squibb Co. and Pfizer Inc. because some of their most important drugs will lose patent protection over the next few years. Wyeth has little to offer beyond its Alzheimer's drug candidate bapineuzumab, and Eli Lilly & Co.'s pipeline consists mostly of early-stage drugs
The sector has also been hit by concerns about the effectiveness of drugs already on the market wrote Shah in his research note.
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